On December 16, 2014, Congress approved legislation extending the $500,000 Section 179 limit and the $2 million overall investment limit for tax year 2014. The new legislation also allows businesses to use Section 179 to deduct the cost of off-the-shelf computer software. Without action by Congress, the Section 179 limit for 2014 had been automatically reduced to $25,000 with a $200,000 overall investment limit.
Section 179 is one of the most useful tax deductions for small businesses. It allows smaller businesses to deduct in a single year (instead of depreciating over time) the cost of tangible personal property they purchase and use for business at least 51% of the time. The overall investment limit reduces the amount you can deduct in any year by reducing the annual limit by the amount by which the cost of qualifying property exceeds $2 million for the year. Historically, the annual Section 179 limit was a fairly low $25,000. In an attempt to help businesses during tough economic years, Congress increased the amount that could be deducted under Section 179—from $128,000 in 2007 to a whopping $500,000 in 2010 through 2013. The limit automatically went back down to $25,000 on January 1, 2014 because Congress failed to pass a bill extending it to 2014.
This new legislation increasing the annual limit to $500,000 and the investment threshold to $2 million will apply for tax year 2014. The Section 179 limit will return to the $25,000 level (with a $200,000 investment limit) in 2015 unless Congress takes action to extend it again.